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Practical Aspects of Initial Token Offerings (Part 1)

Posted by on 25 January 2018

Each one of the many ICOs on which we have advised or are advising have their own peculiarities and different treatment. However, there are some underlying fundamentals which remain the same for tokens of the same token class (see our token framework proposal).

We have decided to share these insights with the community. This article therefore is the start of a series of blog posts with practical insights on specific things to be considered when preparing an Initial Token Offering.

practical-aspects-of-initial-token-offerings-ito-kogens-luchsinger.jpeg1. Tokens used for Payment

For example, if we are looking at an issuance of tokens that are intended to serve as a means of payment between independent third parties (not between the token purchaser and the issuer), the tokens classify as payment instrument and the issuing legal entity is deemed as financial intermediary pursuant to the Swiss Anti-Money Laundering Act. As a result, the issuing legal entity must become a member of a self-regulatory organization or put itself subject to the supervision of the Swiss Financial Market Authority.

The role as financial intermediary and issuer of a payment instrument implies various obligations. This includes among others an internal organisation with an AMLA officer and deputy, the planning, supervising and documenting of the ongoing basic and advanced training of all persons and the preparation, if necessary, of the internal directives for combating money laundering and terrorist financing. Whether and to what extent this can be outsourced heavily depends on the rules and regulations of the self-regulatory organisation the issuer joins.

Although qualifying as a financial intermediary represents an obstacle, start-up companies can overcome it with reasonable effort and contribute to the quality and sustainability of Initial Coin Offerings.

2. Tokens qualifying as Securities under Swiss law

Such tokens will require a prospectus under Swiss law. Compared to foreign jurisdictions the legal requirements for a Swiss prospectus are not onerous. However, it is not advisable to go with the bare legal minimum because prospectus standards have evolved and there is a market expectation as to what a proper prospectus should include (e.g. background information about the business of the company, the deemed use of the proceeds and risks related to the business).

Any token requiring a prospectus under Swiss law will with a very high probability also require a prospectus under EU law. These prospectus requirements are significantly higher than under Swiss law. Hence token issuers will often need to structure their marketing in the EU countries in such way to fall under exemptions. Most notably it may be necessary to limit the access of interested investors to a total of less than 150 per EU member state. This has been successfully done in the past and, although it does go against the grain of an ICO being open to the public, it is the only way to correctly address existing regulation.

3. Defining the counter value of a Token

Before conducting an Initial Token Offering the counter value of a token must be defined. Tokens can either be valued against crypto-currencies such as Ether and Bitcoin or FIAT currencies.

Although it might be obvious to evaluate tokens of a blockchain project against crypto currencies, this is not recommended and can lower the attractiveness of an Initial Token Offering. For example, where one token is equivalent to 0.005 Ether, the volatility of Ether may result in a further advantage for the pre-sale participants (as they may purchase tokens earlier before the Ethereum price is rising) and thus later subscribers might well be deterred from participating in the public offering as the proportionality becomes unattractive. The other way around, the pre-sale participants may claim further tokens if the Ethereum price decreases, as their discount or bonus is diminished. Therefore, we advise to link the token offering to a (stable) FIAT currency.

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If you liked this article, you might also be interested in reading more from the same series:

How Crypto-Tokens qualify under Swiss Law: a comprehensive Framework, by Ronald Kogens and Catrina Luchsinger Gähwiler

Starting an Initial Token Offering (ITO, also called Initial Coin Offering or ICO)- Things to consider, by Ronald Kogens

Blockchain for Patents - Patents for Blockchain a guestblog, by Dany Vogel, Swiss and European Patent Attorney at RENTSCH PARTNER AG

Spotlight on Copyright Issues of Blockchain Technology, a guestblog by Demian StauberAttorney at Law in the fields of Intellectual Property and ICT law at Rentsch Partner AG.  


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Dr. Catrina Luchsinger Gähwiler

Catrina is a specialist in financial market law and corporate law. She has a wealth of experience advising financial market clients, including banks, asset managers and investment vehicles, as well as substantial operational knowledge. She also serves on the management boards of various com-panies, some of which are in the financial services sector. Catrina joined our firm as an associate in the year 2000. She became a partner in 2007. Catrina advises financial services clients and investment companies on regulatory issues as well as on contractual aspects relating to the financial market industry. She furthermore has considerable experience in acquisition and financing transactions, in general corporate work, both for listed and privately held companies, in mergers and acquisitions – predominantly in the financial services sector – and regularly advises in equity capital market transactions both for SIX Swiss Exchange, where she is admitted as a listing agent, and for BX Berne eXchange. Chambers Europe and Chambers Global have identified her as a Recognised Practitioner in the field of banking and finance, where clients have commended her client orientation. She is also ranked as a leading lawyer in the IFLR1000 guide for financial services regulatory and M&A. Catrina obtained her law degree from the University of Zurich in 1991 and was admitted to the Zur-ich Bar in 1995. She gained her PhD in 2004. Her working languages are German, English and French. She is a member of the Zurich Bar Association, the Swiss Bar Association, the International Bar Association (IBA) and the International Pacific Bar Association.

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Ronald Kogens

Ronald Kogens’s practice is focused on disruptive technologies. He advises Swiss and international clients as well as public entities in corporate and technology-related transactions. Ronald Kogens has in-depth knowledge of IP/IT law, in particular licensing of IP-rights, IP-transaction, financial market and contract law. He is an expert in the field of blockchain technology, crypto-currencies and crypto-tokens. He joined Froriep in 2017 as an associate and became partner in July 2019. Before that he worked for a major global consulting firm. He was also part of the legal counsel team of a public listed pharmaceutical company at the headquarters in Switzerland and worked for its subsidiary in the United States. Ronald Kogens graduated in law from the University of Lucerne in 2011 and was admitted to the St. Gallen Bar in 2012. In 2016 he was awarded a Master of Laws (LL.M.) in business law from the Chapman University, California, United States. His working languages are German and English.

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